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Durbin goes after the card networks again; this time over EMV

May 18, 2016

We shouldn't be too surprised if, in the not-too-distant future, Senator Dick Durbin, D-Illinois, proposes legislation to manage EMV implementation and administration in the United States. We should be even less surprised if his proposals make the card companies scream bloody murder.

It won't be the first time the senator has gone after the card brands: His amendment to the Dodd–Frank Wall Street Reform and Consumer Protection Act created all kinds of angst by capping the interchange rate for debit transactions and requiring card networks to give merchants at least two choices for routing signature transactions.

Later, Durbin blasted the Federal Reserve Board's implementation of the legislation, saying that the Fed "failed to adequately follow the law I wrote and did too little to rein in the lucrative swipe fee price-fixing scheme created by Visa, MasterCard and debit card-issuing banks."

Now it seems that the senator might be laying the groundwork for legislation that would force the card companies to revise aspects of their EMV migration roadmap related to deadlines and liability shifts.

On March 17, Durbin sent EMVCo a request for information containing 10 pointed questions about how that body operates.

For instance, question No. 9:

Several of EMVCo's member organizations have advocated against the use of EMV chip-and-PIN authentication in the United States. Does EMVCo believe that EMV chip-and-PIN authentication should be discontinued in Europe, Asia, or other non-U.S. markets?

In a response dated April 15, EMVCo Director of Operations Brian Byrne explained:

EMVCo does not have a position on chip-and-PIN. A variety of cardholder verification methods, including PIN, are supported by the EMV specifications. EMVCo's activities are focused on the development and maintenance of technical specifications. The decision of which cardholder verification method to use is not EMVCo's and is instead based on the issuer configuration of the card and the capabilities of the card-accepting terminal.

This answer (as well as the other nine answers) did not sit well with the senator. On May 15, he fired off a rebuke to Byrne and EMVCo:

I am … troubled by your letter's refusal to take a position on chip-and-PIN technology. This refusal is inexplicable given the well documented benefits of PIN authentication in reducing lost-and-stolen card fraud and EMVCo's statement in its 2015 "Issuer and Application and Security Guidelines" that PIN use "remains an important tool for protecting against lost and stolen fraud."

I am concerned that EMVCo's controlling networks, most of which have fiercely advocated against PINs, mostly because of their financial stake in signature transactions, may be preventing EMVCo from stating a clear position on the benefits of PIN. If EMVCo had more diverse stakeholder voices represented in its ownership, I suspect you would have been authorized to respond with a reasonable and fact-based position on PIN's benefits.

Further, Durbin criticized EMVCo for failing to adhere to the first five principles — transparency, openness, impartiality, effectiveness and relevance, and consensus — of the United States Standards Strategy, which is intended to govern the development of standards:

[T]he process of establishing EMV specifications is opaque, stakeholder participation is limited, decision-making is dominated and exclusively controlled by only six companies, EMVCo standards have been technologically inadequate and their implementation has caused chaos in the U.S. market, and consensus has been lacking.

Last week, the senator continued his mission to get to the bottom of things with a letter to Edith Ramirez, chairwoman of the Federal Trade Commission. Durbin asked Ramirez whether the FTC was tracking progress on EMV implementation in the U.S. and implied that if it wasn't, it really ought to be.

The senator explained that retailers were assuming huge costs to upgrade their POS terminals to comply with EMV standards, but were unable to obtain required certifications that would actually allow them to conduct EMV transactions.

The certification process can last for months, yet some of the technical requirements were not even made available until shortly before the October 2015 shift to EMV technology.

Payment processors and other providers have been slow to conduct certifications for small- and medium-sized merchants; so far only a fraction of merchants who have sought certifications have been able to obtain them, and the merchants who have been stuck in the certification queue are at increased risk of being victimized by fraud because of their inability to use their chip readers.

This fraud creates significant inconvenience for consumers, who must replace their cards, and significant costs for merchants, who are now being held liable by card networks for fraudulent transactions in addition to the costs they incurred to upgrade their technology (not to mention the hefty swipe fees that merchants are also charged on each transaction supposedly to cover fraud costs in the payments system).

Considering that last, parenthetical remark, it would appear that the senator is not finished with the card networks. Any legislation to modify the EMV roadmap almost certainly would have implications for operators as well as merchants. And, this time, it would absolutely leave no bargaining room for card networks and issuers.